Read a recent article in the CLS Blue Sky Blog, Columbia Law School’s blog on corporations and the capital markets, by Sasin’s Associate Professor Pattanaporn Chatjuthamard, Ph.D. and her team.
Exploiting a novel measure of takeover vulnerability mainly based on state legislations, the team explores the effect of hostile takeover threats on credit ratings. Their results reveal that companies with more takeover exposure are assigned significantly better credit ratings. In particular, a rise in takeover vulnerability by one standard deviation results in an improvement in credit ratings by 7.89%. Their findings are consistent with the view that the disciplinary mechanism associated with the takeover market mitigates agency problems and ultimately raises firm value. Further analysis corroborates their conclusion, including propensity score matching, entropy balancing, and an instrumental-variable analysis. As their proxy for takeover susceptibility is plausibly exogenous, the results are more likely to show a causal effect.
Read the full article, click here.